Lepidico: A new valuation is revealed

There are complex moving parts in valuing an in-development, vertically integrated lithium business. But the latest conclusions of Lord Ashbourne, director of energy and resources at Edison Group, on Lepidico are easy to understand.

Edison Group’s latest research report says:

Valuation: Aiming for 5–7x the current share price

On the basis of our new lithium prices, as well as Lepidico’s updated capex and opex estimates, we have revised our valuation of the company to 8.61 Australian cents per share (7.59c/share with equity dilution performed at the current share price of 1.5c) plus a potential, risk adjusted 0.65–1.59c/share (fully diluted) for a conceptual 20,000tpa lithium carbonate equivalent Phase 2 Plant, to take our total aggregate conceptual valuation of the company to 9.26–10.20 cents per share (cf 6.71–7.66 cents per share previously).

Some of the inputs to Lord Ashbourne’s thinking are explained neatly in the video above. Lepidico CEO Joe Walsh also discusses projected milestones for 2023 and the importance of ESG.

To examine Lord Ashbourne’s valuation further, take a look at Edison Group’s latest lithium price forecasts, published in the Lithium’s adolescence report.

With an estimate that over US$50bn of investment is needed by the industry globally to boost lithium supply to 4–5x current levels by 2030, Edison Group has increased its long-term price lithium carbonate price from US$17,000/t to US$22,500/t to reflect wider industry inflation and its view of persistent deficits.

In addition, Edison Group adds: ‘We do not see prices falling to this level in the 2020s and only allow for long-term pricing in the 2030s onwards.’

Reasons other than the increase in lithium prices for Edison Group’s uptick in Lepidico’s valuation include:

• the completion of extensive further pilot plant trials at a larger scale; and
• updated and upgraded mineral resources and reserves at the mine sites in Namibia, both underground and on surface.

For a deeper dive, read the full note Lepidico – Everything moving all at once. And then perhaps take a look at Lepidico’s latest technical update.

Investors should, of course, also be aware of the risks associated with Lepidico and its project. The company has yet to raise all the finance it needs to realise its plans.

Lord Ashbourne also states the long-term price of lithium hydroxide and the price at which Lepdico raises future equity as key sensitivities within the valuation. His numbers are based on the assumption that the company will raise a further A$37.0m (net) in FY23 at a share price of 2.8c.

However, he also points out:

Lepidico may choose to source all (or a portion) of this future equity funding requirement from a strategic partner after debt funding has already been secured, in which case it is possible/likely that a higher equity price could be supported.